It’s challenging enough to talk to people across departments without feeling like you don’t understand the jargon they use.
This glossary provides you with a resource for learning about the fundamentals of a business. Here are 10 essential business terms that can be applied to any career. You should know these terms like the back of your hand whether you are already on the job, preparing for an interview, or just having a casual conversation over coffee.
1. Balance Sheet
The balance sheet is a snapshot of the company’s financial position as of a given date, typically the end of a fiscal quarter or year. Assets, liabilities, and equity are listed in accordance with the accounting equation on the balance sheet.
Companies’ assets are the resources they own and use; their owners anticipate these assets will result in future earnings. Inventory, machinery, and property are all good examples.
A company’s liabilities consist of the money it owes to other people or organizations. Accounts payable, business loans, and vendor expenses are some examples.
The net worth of a company after liquidating its assets and paying off its debts is represented by shareholders’ equity (SE). Equity for shareholders is found by deducting total liabilities from total assets. Equity in a company is calculated by subtracting assets from liabilities.
5. Income Statement
The income statement summarizes the financial health of a company over a specified time frame, such as a quarter or year. The income statement illustrates a company’s profit or loss by breaking down its income and expenditures.
Earnings that come in as a result of doing business are called revenue. Revenue can be estimated by multiplying the unit price by the unit output.
Any cost incurred by a company in the course of its normal operations is considered an expense.
Profit, also called “net income” or “bottom line,” is the monetary result of subtracting operating expenses from revenue. Profit is arrived at by deducting operating costs from sales revenue. Earnings = Revenue minus Expenses.
9. Net Loss
When expenses exceed revenues and the difference is negative, the net loss of a business can be determined using the profit equation.
10. Cash Flow Statement
The inflow and outflow of cash during a specified time period is quantified by the cash flow statement. Determine the source of cash flow, whether operating, investing, or financing.